Big Obamacare payoff for tax cheats?
Dept. of Maybe-Not-So-Unintended Consequences: Doesn’t Obamacare create a big new incentive to fudge your income on your tax returns? The subsidies available on the health care exchanges seem to be based on adjusted gross income (line 37 on Form 1040)– and there’s a huge, conspicuous difference between the subsidy available at, say, a $25,000 income and a $46,000 income. (The subsidy cutoff of is $45,960 for a single person). In California, for the “bronze” policy I’m interested in, at $46,000 I’d pay $507 a month. At $25,000 I’d pay … $63. A difference of $444 a month.
Sure there’s always an incentive to cheat on your taxes (assuming you don’t get caught). But people in this income range don’t pay much in income taxes to cheat on–this is basically the 15% bracket. Lower your income by $20,000 and you save $3,000. They also pay FICA payroll taxes (though they get something in exchange–more Social Security benefits). FICA taxes are a maximum of about 15% for the self-employed in that range. Lower your earnings from $46,000 to $25,000 and you save another $3,000 and change. The Obamacare cheating bonus–$5,328, in the above example–dwarfs either of those incentives, and almost doubles the payoff for understating your income. Save on income taxes and FICA and get near-free health insurance too!
Of course, it’s mainly the self-employed who are able to fudge their incomes–no annoying w-2 forms, lots of loosely characterizable deductions. Don’t expect to see a lot of freelancers with $46,000 incomes next year.
Indeed, if you go onto the California Obamacare web site (www.CoveredCa.com) and tell them you have an income of $46,000 you get a helpful little notice:
Your Annual Income is just above the boundary for premium assistance – please be sure you have entered an accurate income.
Translation: “Are you sure you don’t want to cheat us just a little?” (wink wink). ** Maybe that visit to your girlfriend in Florida was really a trip to scout business leads. Yeah, it’s all coming back now! If you can get your AGI down by just $100 to $45,900, your Obamacare subsidy jumps from 0 to $225 a month.
In fact it wouldn’t be surprising if there’s an unexpected dip in reported incomes in the entire $25-$46,000 income range next year.
**–The California site gives an equivalent notice if you come in a few dollars below the cutoff: “Your Annual Income is just below the boundary for premium assistance – please be sure you have entered an accurate income.” This may be the clearest example of false symmetry ever discovered.